A dangerous contagion is spreading from the U.S. Federal Reserve to the European Central Bank and the rest of the world. The Fed has been raising interest rates, three-quarters of a point at a time. It is likely to do so again at the next meeting of the Federal Open Market Committee on Tuesday and Wednesday.

All this depresses economic activity, which is precisely the Fed’s intention. As an even more dangerous side effect, the higher U.S. rates have pushed the dollar to its highest exchange value against other currencies in decades, as investors move their money into dollar assets.

This, in turn, has a domino effect. On September 8, the European Central Bank raised euro interest rates by three quarters of a point, to protect the value of the euro, which had fallen to a bit less than a dollar. It didn’t work. The euro rallied for a few days and then settled back down to right around a dollar.

The rate hikes will damage the U.S. economy, but will do even more to harm the European economy, which is in worse shape to begin with. Unemployment is above 6 percent compared to under 4 percent in the U.S., and Europe faces a crisis of rising energy costs and fuel shortages.

Even more than in the U.S., Europe is not facing a general inflation that would justify rate hikes, but rather price increases concentrated on one sector due to Putin’s natural gas boycott. The ECB policy makes no economic sense.

Europe has been struggling to fashion a common energy policy. A recession will make this even more costly and difficult. There are huge gaps between the prosperous EU member nations, such as Germany, where unemployment is below 3 percent, and poorer member nations such as Italy, Greece, and Spain. Recession will also help the European far right.

And if rate hikes by the central banks of the two largest economies are perverse domestically, they are even worse for the rest of the world. A stronger dollar is the flip side of weaker Third World currencies. So poor countries end up paying more for their imports. Thus does the U.S. export its inflation to the Global South.

Countries with debt denominated in dollars face higher interest costs on their debt, and the principal amount of the debt also increases. The Wall Street Journal reports that 32 countries have a total of $83 billion in dollar debt coming due next year. As they have to spend more to pay off or refinance that debt, they spend less on health, education, and public services. Last Thursday, the World Bank warned of "a string of financial crises in emerging market and developing economies that would do them lasting harm."

Central bankers are supposed to be looking out for the economy as a whole. But at the end of the day, they have the mentality of bankers, protecting creditors. The project of democratizing central banking is a never-ending challenge.